itsettled - the automated credit management software - brings businesses the ultimate guide to dealing with unpaid invoices.
If you’re constantly getting paid late by certain customers, you can quickly become stressed and unhappy with your customer. That resentment will eventually lead to you taking it out on the customer if you don’t take action. Angry emails and calls will do nothing to resolve the situation, especially if they aren’t preceded by polite requests for payment.
It’s obvious, but when you get paid late, you won’t have as much cash in your business bank account. This means you might not be able to pay your staff or yourself a wage, and if it gets really serious, it might even impact your business's future.
Another obvious one, but unpaid invoices can cause you (as well as your staff) a lot of stress. Not knowing when your next injection of money will come can be really stressful, and impact your mental health hugely. For many business owners, their business finances can feel like your personal finances, so this financial stress can impact your own personal life too. This is a situation which you want to avoid at all costs.
If your cashflow position isn’t strong due to large amounts of outstanding invoices, you may be rejected for business finance or business loans. These loans can be useful if you are wanting to expand your business or offer new services or products. Business finance can be useful when you’re in a tight spot with your cashflow, so making sure your invoicing process is working is important.
In addition to the point above, unpaid invoices can lead to you not being able to invest further in your business. Unpaid invoices equals less cash, and less cash equals less money to drive your business forward. This money could go towards hiring new staff, investing in new technologies, expanding into new markets, or developing new services or products.
If possible, it’s best practice to send a reminder of the invoice either the day or two days before the invoice is due. This can be especially helpful if you didn’t complete the work recently, or if it's a one off invoice (opposed to a recurring one). You might worry that this is rude - but as long as the message is polite, no customer will think this is unnecessary when they receive it. Some customers might find it helpful, as it will remind them to pay if they’ve forgotten.
If you don’t receive payment, it’s a good idea to send a polite reminder the day after the due date. Make sure you re-attach the invoice, as this will include details of your bank account so that your customer can pay you.
If you are met with silence after the first two steps, it’s now time to make a call to your contact at the company. Simply ask them if they have any updates on your unpaid invoice, and if they need anything else from you in order to pay the outstanding invoice. If you don’t get an answer, use another contact at the company, or ask to speak to whoever is in charge of accounts.
If your call ends with your customer providing excuses for late payment, make sure you’re prepared - you can read up on how to respond in our Excuses for Late Payment article. Whether it’s “we don’t have any money” or “we can’t pay you as we’re very busy”, we’ve got you covered.
If the customer still doesn’t pay, then the next option is to explain the consequences for them. If you don’t already have a process for dealing with late payment or unpaid invoices, now is the time to create one. Decide if you want to charge any interest or fees on late payments, or when you want to approach legal action or a debt collection agency.
If you raise invoices at all (which we’re assuming you do if you’re reading this), then itsettled is a great solution. Our credit management software collects your invoices fast, reduces risk, and improves your cashflow. After syncing your accountancy software with our software, you simply upload your invoices and itsettled does the rest for you.
Before sending out an invoice, make sure that you have checked it for mistakes. Incorrect invoices are frequently used as an excuse for unpaid invoices, so nip this in the bud by ensuring your invoices have all the correct information, including the right bank details, address, and invoice number.
It’s a good idea to make sure you understand what you can legally do about unpaid invoices. There are certain steps that you have to take, and certain procedures you have to follow when taking legal action on unpaid invoices. Read more about this on the UK government website.
When chasing invoices, we recommend using a consistent tone when communicating. If you start off very polite, but use an angry tone in your next email, you risk alienating your customer and upsetting them. It’s absolutely fine to escalate the tone, but make sure you do this gradually and within reason. Never use rude language.
If you feel like it’s an affordable step, it can be a good idea to offer discounts on invoices for customers who pay early. It doesn’t have to be a large amount, but a small percentage can make it appealing to customers. Of course, this may not be suitable for all your customers, so think carefully about who to offer discounts too if you do decide to offer them.
You can prevent unpaid invoices ever becoming an issue by using an automated software like itsettled. Simply sync your accountancy software, upload your invoices, and itsettled will chase invoices for you. Try our full access free 7 day trial today.
If you don’t have a set procedure in place for what your payment terms are, now is the perfect opportunity. You should also make sure that you communicate these terms to any new customer when you start working with them, and ensure that they understand what these terms mean.
There’s no need to jam pack your invoices - you just need a few key pieces of information. It’s important that the key information is clear and easily understandable. Sage have put together this handy invoicing cheat sheet which has all the details you’ll need.
Once you’ve sent your invoice, we recommend emailing your customer a few days later to check it has been received and that they are happy with the information. This can prevent the excuse of ‘we didn’t receive the invoice’ that is unfortunately very common. This also provides the customer with an opportunity to query the invoice if they were unhappy with anything before the due date, thus preventing any drawn out conversations post due date.
If you make a phone call to discuss the invoice, make sure that you take a note of any conversations you have with the customer, including who you spoke to, what time you spoke to them, and a brief overview of the conversation. This can be useful if you need to include any chasing information for a later date.
It sounds incredibly obvious, but make sure that you always send out your invoices before they’re due. If you’re sending invoices out late, you’re never going to be paid on time. Consider putting a reminder in your diary for when an invoice needs to be sent out if you often forget.
This isn’t an option for everyone, but many business owners will charge a late payment fee, or interest, on any invoice that isn’t paid by the due date. The government says that the interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions.
When you bring a new customer onboard, think about credit checking them first. This might sound extreme, but it’s better to be safe than sorry. You don’t have to dismiss them as a customer if their credit report is bad - but you might want to set stricter payment terms or keep an eye on their payments more closely. itsettled offers free credit checks and credit reports to all its customers.
The Prompt Payment Code was introduced by the UK Government in December 2008 and is a voluntary code of practices for businesses. When signing the code, businesses undertake three key responsibilities;
The Prompt Payment Code is run out of the Office of the Small Business Commissioner.
When approached for payment, some businesses may ask you if they can have a payment plan put in place. It’s wise to carefully consider how you will set out your payment plans, and what the consequences will be if instalments are not made on them. Read the free itsettled guide to Payment Plans to discover how they work and whether they are a good fit for your business.
Running a business can be exhausting, and you can often feel like your to-do list is never-ending. If you’re regularly forgetting to chase invoices, it might be a good idea to schedule reminders in your phone or diary. Alternatively, use an automated credit management software that will chase your invoices for you, such as itsettled.
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